UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended February 28, 2005
[_] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act; For the transition period from _________ to __________
Commission File Number #000-1024048
HOMELIFE, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 33-0680443
------------------------------ -----------------------------
(State or other jurisdiction of (I.R.S. Employer incorporation
organization) or Identification No.)
1503 South Coast Drive, Suite 204, Costa Mesa, CA 92626
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(714) 241-3030
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
The issuer had 12,371,886 common shares outstanding as of February 28, 2005
Transitional Small Business Disclosure Format (check one):
Yes No X
HOMELIFE, INC.
INDEX
PAGE NO.
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PART I - FINANCIAL INFORMATION 1.
Item 1. Financial Statements 1.
Consolidated Balance Sheet at February 28, 2005 (Unaudited) 1.
Consolidated Statements of Operations for the three months ended 3.
February 28, 2005 and February 29, 2004 (Unaudited)
Consolidated Statements of Operations for the nine months ended 4.
February 28, 2005 and February 29, 2004 (Unaudited)
Consolidated Statements of Cash Flows for the nine months ended 5.
February 28, 2005 and February 29, 2004 (Unaudited)
Notes to Consolidated Financial Statements 6.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation. 7.
Item 3. Controls and Procedures. 10.
PART II - OTHER INFORMATION 10.
Item 1. Legal Proceedings. 10.
Item 2. Changes in Securities and Use of Proceeds. 10.
Item 3. Defaults Upon Senior Securities. 10.
Item 4. Submission of Matters to a Vote of Security Holders. 11.
Item 5. Other Information. 11.
Item 6. Exhibits and Reports on Form 8-K. 11.
(a) Exhibits
(b) Reports on Form 8-K
PART I - FINANCIAL INFORMATION
HOMELIFE, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
At February 28, 2005
(unaudited)
ASSETS
Current Assets
Cash $ 88,516
Marketable securities, at fair value 900
Accounts receivable, net 11,054
Prepaid expenses and deposits 36,140
---------------
136,610
Property and Equipment, net 83,982
Goodwill 225,943
Other Assets, net 107,800
---------------
$554,335
===============
1
HOMELIFE, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
At February 28, 2005
(unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Lines of credit $44,703
Accounts payable 189,950
Reserve for warranty 51,953
Note payable 4,738
Deferred revenue 42,645
---------------
333,989
Note Payable 18,554
Due to Stockholder 117,253
Minority Interest 20,843
---------------
490,639
Stockholders' Equity
Capital Stock 1,037,372
Additional Paid in Capital 3,731,741
Accumulated Other Comprehensive Income 4,715
Accumulated Deficit (4,710,132)
----------------
63,696
$554,335
================
2
HOMELIFE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three months ended February 28, 2005 and February 29, 2004
(unaudited)
2005 2004
------------ ------------
REVENUE
Royalty and franchise fees $ 130,283 $ 114,961
Warranty fees 21,441 21,035
Other income 3,902 21,225
------------ ------------
155,626 157,221
DIRECT COSTS 25,811 26,260
------------ ------------
129,815 130,961
------------ ------------
EXPENSES
Salaries and fringe benefits 53,857 52,678
General and administrative 74,543 64,190
Occupancy 10,295 14,814
Financial 3,332 4,920
Depreciation 15,900 17,436
Amortization 12,963 12,963
------------ ------------
170,890 167,001
------------ ------------
NET LOSS (41,075) (36,040)
BASIC AND FULLY DILUTED LOSS PER COMMON SHARE $ (0.00) $ (0.01)
============ ============
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES 12,371,886 6,108,586
3
HOMELIFE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Nine months ended February 28, 2005 and February 29, 2004
(unaudited)
2005 2004
------------ ------------
REVENUE
Royalty and franchise fees $ 349,061 $ 354,242
Warranty fees 83,155 82,284
Other income 18,465 56,496
------------ ------------
450,681 493,022
DIRECT COSTS 69,518 81,889
------------ ------------
381,163 411,133
------------ ------------
EXPENSES
Salaries and fringe benefits 154,160 173,919
General and administrative 197,063 216,615
Occupancy 38,179 44,017
Financial 5,648 7,753
Depreciation 47,701 49,296
Amortization 38,889 38,889
------------ ------------
481,640 530,489
NET LOSS (100,477) (119,356)
BASIC AND FULLY DILUTED LOSS PER COMMON SHARE $ (0.01) $ (0.02)
============ ============
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES 12,371,886 6,108,586
4
HOMELIFE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine months ended February 28, 2005 and February 29, 2004
(unaudited)
2005 2004
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(100,477) $(117,856)
Adjustments to reconcile net loss to net
cash from operating activities
Depreciation 47,701 49,299
Amortization 38,889 38,889
Changes in assets and liabilities
Accounts receivable (2,693) 3,078
Prepaid expenses and deposits (635) (875)
Accounts payable (45,138) (17,175)
Reserve for warranty -- (8,842)
Due to stockholder 12,589 38,085
Deferred revenue -- (16,935)
--------- ---------
(49,764) (32,332)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES -- --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from (repayments on) lines of credit, net 2,014 (3,130)
Proceeds from note payable 25,000 --
Repayments on note payable (1,708) --
--------- ---------
25,306 (3,130)
NET CHANGE IN CASH (24,458) (35,462)
Cash, beginning of period 112,974 123,794
--------- ---------
CASH, END OF PERIOD $ 88,516 $ 88,332
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Interest paid $ 3,058 $ 7,053
========= =========
Income taxes paid $ -- $ --
========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Payment of litigation settlement by stockholder $ 85,000 $ --
========= =========
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HOMELIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. MANAGEMENT'S PLAN AND FUTURE OPERATIONS
At February 28, 2005, adverse principal conditions and events are prevalent that
require necessary action by management to enable the company to return to
profitability and to reverse these adverse conditions and events. These
conditions and events include recurring operating losses, working capital
deficiencies, and adverse key financial ratios. Management's plans to mitigate
these adverse conditions and events include:
a.) During the quarter ended August 31, 2004, the company settled certain
lawsuits regarding the former Calgary operations and the current Michigan
operations which will further reduce legal fees and management involvement.
b) The company is currently focusing on:
- attempting to raise additional funding through private and public
offering,
- investigating and pursuing potential mergers/acquisitions,
- the core business of franchising nationwide
- the company is making efforts to reduce unnecessary operating
expenses on a monthly basis
The accompanying consolidated financial statements do not include any
adjustments to the recoverability and classification of recorded asset
amounts and classification of liabilities that might be necessary in the
event that the Company is unable to continue as a going concern.
Note 2. BASIS OF CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION
The condensed consolidated financial statements of HomeLife, Inc. and
Subsidiaries (the "Company") included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and footnote disclosures
normally included in consolidated financial statements prepared in conjunction
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in conjunction with
the annual audited consolidated financial statements and the notes thereto
included in the Company's Form 10-KSB Annual Report, and other reports filed
with the SEC.
The accompanying unaudited interim consolidated financial statements reflect all
adjustments of a normal and recurring nature which are, in the opinion of
management, necessary to present fairly the financial position, results of
operations and cash flows of the Company for the interim periods presented. The
results of operations for these periods are not necessarily comparable to, or
indicative of, results of any other interim period of or for the fiscal year
taken as a whole. Certain financial information that is not required for interim
financial reporting purposes has been omitted.
Reclassifications
Certain amounts in the prior consolidated financial statements have been
reclassified to conform with the current year presentation. The
reclassifications made to the prior year have no impact on the net income
(loss), or overall presentation of the consolidated financial statements.
6
Note 3. NOTE PAYABLE
In August 2004, the Company obtained a $25,000 note payable from a bank. The
note payable is unsecured and requires monthly principal and interest payments
of $516 with an annual interest rate of 8.60%. Final payment is due August 2009.
Annual maturities of note payable for the five years succeeding February
28, 2005 are as follows:
2006 2007 2008 2009 2010
---- ---- ---- ---- ----
$4,738 $4,781 $5,209 $5,675 $2,889
Note 4. LEASE ARRANGEMENTS
In September 2004, the Company exercised their option to cancel the lease for
the California office. In accordance with the lease terms, the Company paid an
early termination fee of $2,000, after vacating the premises.
In October 2004, the Company entered into a new office lease for the California
operations. The lease is for a term of three years, with annual rent of $18,596,
$21,638, and $22,991 for the first, second, and third years of the lease term,
respectively.
Future minimum rental payments for the years succeeding February 28, 2005
are as follows:
2006 $ 20,850
2007 22,202
2008 13,411
---------
$ 56,463
=========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company has experienced growth primarily through its acquisitions of
and combinations with various other companies. This includes the acquisition in
August 1996 of the Keim Group of Companies and MaxAmerica Home Warranty Company
(Michigan) adding 60 real estate offices and a home warranty company in
Michigan. In 1997, the company purchased certain assets of S & S Acquisition
Corp. providing the company with Red Carpet Real Estate Services and National
Real Estate Services adding 58 real estate offices. The acquisition of the real
estate computer technology of House by Mouse and Virtual Assistant provided the
Company with the ability to enhance its Internet communication services to its
franchises. In July 1997, the Company acquired the licensing agreements,
trademarks and franchise offices of Network Real Estate, Inc. This acquisition
provided the Company with an additional 12 offices in Northern California and
access to the "high-end" luxury division of "International Estates". In February
1998, the Company acquired Builders Realty (Calgary) Ltd. providing access to
the Alberta, Canada market in both retail real estate and mortgage loans.
Certain assets of Builders Realty (Calgary) were sold during fiscal year 2002.
On September 15, 1998, the Company purchased the stock of the investment banking
firm of Aspen, Benson and May, LLC for Common stock.
7
From time to time, the Company has entered into strategic alliances with
various companies in order to explore the cross-marketing of their services to
customers of the Company or its franchises. To date, these strategic alliances
have not included any funding agreements or other liabilities on the part of the
Company.
The following is management's discussion and analysis of HomeLife's
financial condition and results of operations. Detailed information is contained
in the financial statements included with this document. This section contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this document should be read as being applicable
to all related forward-looking statements wherever they appear in this document.
Three Months Ended February 28, 2005 (unaudited) compared to the Three Months
Ended February 29, 2004 (unaudited).
Revenues. The Company generated gross sales of $155,626 for the quarter
ended February 28, 2005 compared to gross sales of $157,221 for the quarter
ended February 29, 2004. Revenue by business segment is shown below:
February 28, 2005 February 29, 2004
Amount % Amount %
-------- --- -------- ---
Royalty & franchise fees $130,283 84 $114,961 73
Home warranty sales 21,441 14 21,035 13
Other 3,902 2 21,225 14
-------- --- -------- ---
TOTAL $155,626 100 $157,221 100
======== === ======== ===
Royalty fees & franchise fees were higher in the current quarter due to new
franchises obtained in California. Home warranty fees were comparable for the
two periods. Other income was higher in the prior year due to more real estate
brokerage transactions closed during that period.
Direct Costs. Direct costs are comparable to the prior year third quarter
and correspond to the warranty revenue. Commission costs were minimal during the
period in relation to the minor sales (in other income).
Salaries and fringe benefits. Salaries and fringe benefits increased from
$52,678 for the three months ended February 29, 2004 to $53,857 for the three
months ended February 28, 2005. This slight increase is a net result of a
telemarketer hired in the Michigan office during the quarter and two employees
who left the company during the fourth quarter of the prior year fiscal year.
General and administrative. General and administrative costs increased
$10,353 from the quarter ended February 29, 2004. The increase was primarily due
to increased convention and promotional expenditures in the current quarter.
Occupancy. Occupancy costs were lower for the current quarter compared to
the prior year quarter as a result of the California corporate office move.
Financial. Financial costs were comparable for both periods.
Depreciation. Depreciation of fixed assets was comparable for both
periods.
Amortization. Amortization of intangibles was comparable for both periods.
8
Nine Months Ended February 28, 2005 (unaudited) compared to the Nine Months
Ended February 29, 2004 (unaudited).
Revenues. The Company generated gross sales of $450,681 for the first nine
months of fiscal year 2005 compared to gross sales of $493,022 for first nine
months of fiscal year 2004. Revenue by business segment is shown below:
February 28, 2005 February 29, 2004
Amount % Amount %
-------- --- ------ ---
Royalty & franchise fees $349,061 77 $354,242 72
Home warranty sales 83,155 18 82,284 17
Other 18,465 5 56,496 11
-------- --- -------- ---
TOTAL $450,681 100 $493,022 100
======== === ======== ===
Overall revenues were lower for the nine months ended February 28, 2005 compared
to the prior year same period due to lower brokerage sales in both offices. This
was due to fewer transactions in the current year. Royalty & franchise fees, as
well as home warranty fees, were comparable for the two periods.
Direct Costs. Direct costs have decreased from the prior year nine months
ended due to overall lower costs associated with the warranty revenue.
Commissions paid for real estate sales are also lower in conjunction with fewer
sales during this period.
Salaries and fringe benefits. Salaries and fringe benefits decreased
$19,759, from $173,919 for the nine months ended February 29, 2004 to $154,160
for the nine months ended February 28, 2005. This decrease was the net result of
two employees who left the company in the prior year and the addition of one
employee during the third quarter of the current year.
General and administrative. General and administrative costs decreased
$19,552 or 9% from the same period in the prior year. The decrease was primarily
as result of lower legal fees in conjunction with the settlement of the
outstanding litigation from the prior year, as well as lower office expenditures
in the current year.
Occupancy. As a result of the California corporate office move, occupancy
costs were lower for the nine months ended February 28, 2005 compared to the
same period in the prior year.
Financial. Financial costs were comparable for both periods.
Depreciation. Depreciation of fixed assets was comparable for both
periods.
Amortization. Amortization of intangibles was comparable for both periods.
Liquidity and capital resources. The Company has lines of credit with two banks
with available credit of $95,000 and a term loan of $25,000. The capital
requirements of the Company are for operating expenses and to service and use of
its lines of credit. The Company has recorded operating losses in the prior two
years. These losses are primarily due to amortization and depreciation and legal
fees incurred in defense of litigation actions. The company does not have any
derivative instruments or hedging activities, therefore, the company believes
that SFAS No. 133 will have no material impact on the company's financial
statements or notes thereto.
The company has experienced recurring operating losses and has a working capital
deficiency of $197,379 as of February 28, 2005. Management has initiated changes
in operational procedures, reduced staff and expenses and focused its efforts on
its core business. Management believes that, despite the losses incurred and the
deterioration in stockholders' equity, it has developed a plan, which, if
successfully implemented, can improve the operating results and financial
condition of the company. Furthermore, the company continues its attempt to
raise additional financings through private and public offerings.
9
Item 3. Controls and Procedures
Based on the evaluation of the Company's disclosure controls and procedures by
Andrew Cimerman, the Company's Chief Executive Officer and Marie M. May, the
Company's Chief Financial Officer, as of a date within 45 days of the filing
date of this quarterly report, such officers have concluded that the Company's
disclosure controls and procedures are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities and Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported, within the time period specified by the
Securities and Exchange Commission's rules and forms.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The company was involved in a lawsuit with the sellers of Builders Realty
(Calgary) Ltd. to reduce the purchase price paid for Builders Realty
(Calgary) Ltd. The sellers of Builders Realty (Calgary) Ltd. had filed a
counter lawsuit for breach of contract.
In connection with the above lawsuit, the company filed a claim against
the solicitors who were responsible for setting up the original
transaction between the company and the sellers of Builders Realty
(Calgary) Ltd.
In addition to the above lawsuits, the sellers of Builders Realty
(Calgary) Ltd., through another business entity, filed a lawsuit against
Builders Realty (Calgary) Ltd. for unpaid rents and commissions and
damages incurred at rental offices.
On July 31, 2003, several realtors formerly employed by Builders Realty
(Calgary) Ltd. filed a lawsuit against the company seeking payment of
unpaid commissions. The Company is holding these commissions in a trust
fund as required by a court order.
On July 19, 2004, all of the above mentioned lawsuits were settled at no
additional expense to the Company.
The company was involved in a lawsuit with a franchisee of Red Carpet
Keim, a wholly-owned subsidiary of the company. A claim in the amount of
$124,800 was filed on September 13, 2002 as a result of the deterioration
in value of the individual's stock value of HomeLife, Inc. Additionally,
the company has filed a counter claim against the franchisee for
non-payment of royalty and franchise fees.
This lawsuit was settled on August 20, 2004 in the amount of $85,000. This
amount was accrued in the year ended May 31, 2004 financial statements and
was paid during the quarter ended August 31, 2004 by the majority
stockholder.
Item 2. Changes in Securities and use of proceeds.
None.
Item 3. Defaults upon senior securities.
None.
10
Item 4. Submission of matters to a vote of security holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
31 Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K:
None.
11
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") the Registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HOMELIFE, INC.
Registrant
By: /s/ Andrew Cimerman Date: April 14, 2005
-------------------------------------------- ---------------
Chief Executive Officer, President, Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Andrew Cimerman Date: April 14, 2005
-------------------------------------------- ---------------
Chief Executive Officer, President, Director
12